In 1929, J. P. Morgan & Co. was at the height of its power. The bank’s leadership on Wall Street was undisputed; abroad, Morgan’s financier-diplomats directed postwar reconstruction. A decade later saw Morgan’s assets diminished and influence undone; as one partner noted, “The days of private banking houses [were] passing” (p. 345). This “overarching story […] of decline” is the topic of Martin Horn’s book (p. 3). Its chief revelation is just how decisively Depression-era politics curtailed the Morgan bankers’ ability to shape capitalism in their image.
The wellspring of Horn’s account are the papers of a quartet of Morgan partners. Jack Morgan and Thomas W. Lamont are the most well-known; Horn also gives ample voice to Russel Leffingwell, whom he calls “one of the more flexible, imaginative thinkers on Wall Street”, and Parker Gilbert, who joined Morgan from his job as Agent General for Reparations in Weimar Berlin (p. 232). Toggling adeptly between the international and the domestic, Horn’s chapters reveal both the partners’ designs and the increasingly formidable forces opposing them.
Abroad, the Morgan purpose in the 1920s was to check governments and shift financial discretion to gold-managing central banks and clearing houses such as the Bank of International Settlements (founded in 1930 and capitalized under Morgan guidance). In the partners’ view, doing so amounted to “rebuilding the world” (p. 117). The partners sought to exorcise the political demons of war debts and reparations by shifting public obligations to private lenders. This principle underpinned Morgan counsel in the Dawes and Young settlements; it informed the partners’ demand during the 1931 financial crisis to cancel intergovernmental debts and uphold private debts. On the Morgan view, “the future depend[ed] on the restoration of faith in paper promises” (p. 150). The defaulters of the 1930s disagreed. Germany, Italy, and Japan disappeared from the bank’s rolls, though the partners continued to nurture illusions regarding the economic future of the fascist regimes.
At home, Horn identifies two chief forces weakening Morgan dominance. The first was the crisis itself, which severely affected a banking house with broad international exposure. Between the 1931 financial debacle and Franklin Roosevelt’s inauguration, Morgan assets and deposits shrank by one-half; between 1929 and 1939, the partnership’s net worth melted to one-sixth. Given that the partners “could see the effects of deflation in the contraction of their own balance sheet,” there was no room for the kind of peer bailouts that Morgan had performed in the Panic of 1907 (p. 206). Instead, the partners tendered lengthy policy proposals to Herbert Hoover and Roosevelt. The key to overcoming the Depression, they argued, lay in restoring the health of capital markets. This implied a distinctive mix of orthodox and forward-thinking measures: the fall in goods prices and wages should run its course; deflation in asset prices, however, should be stemmed by the Fed. Constricting banks’ room for maneuver—financial regulation and oversight—was counterproductive.
The second force testing the partners was a newly activist Congress. The Glass-Steagall Act forced Morgan to separate its deposit and securities business, a divorce that gutted—by the partners’ own admission—the very essence of the Morgan bank. A string of congressional hearings dragged the firm’s private data into the public record (and Horn makes good use of this material). The Banking Act of 1935 demoted the Morgan-friendly New York-based Fed and moved control to Washington, DC; the Johnson Act (governing US lending abroad) quashed hopes of resuming international activity. By the late 1930s, the bank sat on bulging deposits that it could not lend profitably. Jack Morgan described the firm’s condition as “comatose” (p. 327).
Horn’s story, of course, has been told before, in Ron Chernow’s classic House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (1990). Both books have their advantages. Chernow’s treatment is more fulsome on the Morgan bankers’ characters and the world they inhabited. Horn is generally more detailed on policy, with some omissions; for example, he is oddly silent about why J. P. Morgan chose commercial over investment banking to comply with Glass-Steagall. The choice is ably explained by Chernow: the separation was tactical and designed as reversible, and informal connections remained strong. In Chernow’s story, the investment arm, Morgan Stanley, takes over as protagonist; in Horn’s book, it simply disappears from the narrative.
Horn’s acount, however, shows more clearly than Chernow’s dynasty drama that the leading Morgan men were political actors engaged in a contest over the shape of the capitalist order. The partners prepare for congressional subpoenas fastidiously and endure the scrutiny with realism. They manage press relations meticulously and creatively. They reveal a pragmatic streak: accepting that the gold standard cannot be salvaged, the partners coolly discard it, with Leffingwell describing it as “only a means to an end, the end of making payment in stable money” (p. 150). During the worst of the Depression, the partners recognize debt deflation as a real danger and accordingly adapt their response.
Horn thus provides a bracing perspective on the classic question of the sources of Morgan power and, by implication, of what constitutes financial power more generally. Like most scholars, Horn dismisses “money trust” vituperations (live and well during the 1930s), arguing that the partners’ far-flung industrial directorships conferred little control. Susie Pak has drawn attention to Morgan’s immersion in elite networks: their “social capital” (Susie J. Pak, Gentlemen Bankers: The World of J. P. Morgan, 2013). In Horn’s book, Morgan’s power is revealed by its limits. Defaults, capital controls, and economic nationalism put an end to the bank’s impresario role in the global economy. At home, financial regulation and transparency rules truncated Morgan’s ability to operate widely and discreetly. Horn reminds us that bankers’ social capital is but an accessory to capital, pure and simple: the power, that is, to grant or withhold capital, and to dictate the terms of doing so. This power was diminished by the emboldened states of the 1930s.
Professor Link specializes in the history of global political economy and the intellectual history of capitalism. He is the author of Forging Global Fordism: Nazi Germany, Soviet Russia, and the Contest over the Industrial Order (2020).
